ECJ reform reduces judicial protection against substantial decisions of the SRB and the ESAs to one instance
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The Statute of the Court of Justice of the EU is undergoing an extensive reform aimed at reducing the Court's workload. A core element of this reform is the severe restriction of admissibility of appeals against decisions made by the General Court in cases where an independent board of appeals has already conducted a mandatory administrative review.
In the financial sector, this reform affects all decisions of the Single Resolution Board (SRB) and the European Supervisory Authorities (ESAs), which are subject to review by the SRB Appeal Panel or the Joint Board of Appeal of the ESAs. This includes decisions by the SRB regarding requirements for own funds and eligible liabilities, the removal of substantive impediments to resolvability, the imposition of fines and periodic penalty payments, as well as extraordinary ex-post contributions to the Single Resolution Fund (SRF). The reform will apply to appeals submitted to the Court of Justice after the entry into force of the regulation amending the Court's Statute. By contrast, the reform does not address decisions by the SRB and the ESAs which are not subject to mandatory administrative review, nor decisions by the European Central Bank (ECB). Thus, judicial protection in these essential areas of financial services regulation remains as it is.
Under the reform, judicial appeals will be subject to enhanced requirements, effectively eliminating the availability of a second instance. Given certain institutional shortcomings of the boards of appeal and their reduced scope of legal review, this may reduce the level of effective judicial protection from that available to financial institutions before the reform. As a result, the intended enhancements to judicial review through the reform could indeed lower the prospects of obtaining legal protection and access to justice in disputes with the SRB and the ESAs.
Key Findings
- The ECJ reform reduces judicial protection to one instance, unless a case raises an issue of significance with respect to the unity, consistency or development of EU law.
- The effective elimination of the second instance concerns all decisions of the SRB and the ESAs subject to review by the SRB Appeal Panel or the Joint Board of Appeal of the ESAs.
- The reform does not address other decisions of the SRB and the ESAs or decisions by the ECB, leaving intact judicial protection in these essential areas of financial services regulation.
- The appeal filtering mechanism will be applicable to appeals submitted to the Court of Justice after the entry into force of the regulation amending the Court's Statute.
Introduction
Financial institutions are increasingly recognising the need to seek legal protection against regulatory actions within the EU's financial services sphere. The current regulatory framework at EU level under the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM) raises a number of structural issues which may become the subject of future litigation.
A recent illustration is the successful action for annulment brought against the 2022 ex-ante contributions to the SRF (General Court, judgment of 10 April 2024, Dexia v SRB, T-411/22, ECLI:EU:T:2024:216). The ramifications of this ruling extend well beyond the applicant, the French credit institution Dexia. The SRB will have to repay considerable amounts of unlawfully calculated ex-ante contributions charged to several other institutions which have brought similar legal actions.
Legal disputes can also be expected to arise in the near future in connection with certain regulatory priorities of the ECB. For example, banks are subject to increasing prescription and regulatory expectations regarding the management of their own exposure to climate and sustainability risks. With the ECB recently signalling potential enforcement action where banks fail to meet expectations and press reports of warning letters sent to specific banks, the need of legal action against possible enforcement action looms large. Legal protection may also be sought with arefirn view to the imposition of other prudential requirements under the ECB's supervisory review and evaluation process (SREP), as well as SRB decisions on minimum requirements for own funds and eligible liabilities (MREL).
However, the landscape of legal recourse regarding certain regulatory decisions on financial services at EU level is undergoing transformation. A recent reform of the Statute of the Court of Justice of the European Union, which introduces a high bar for appeals, is poised to significantly affect the prospects of obtaining legal protection and access to justice. The reform concerns all decisions of the SRB and the ESAs which are subject to review by the SRB Appeal Panel or the Joint Board of Appeal of the ESAs, for example decisions on MREL. By contrast, the reform does not address decisions made by the ECB.
This article examines and explains the key aspects of the reform, including its current status and scope, as well as how the appeal filtering mechanism works. The analysis demonstrates that the procedural reform will effectively eliminate the availability of a second instance by making judicial appeals subject to enhanced requirements. This will compromise the institutions' access to justice and have a far-reaching impact on legal safeguards in the financial regulatory realm, particularly given the institutional shortcomings of the boards of appeal not tackled by the reform.
Current status of the reform
On 11 April 2024, the final act amending the Statute of the Court of Justice of the European Union was signed. Having completed the legislative procedure, the entry into force of the amendment depends on its publication in the Official Journal of the EU. Coordination efforts are underway to synchronise publication of the Regulation amending the Statute with the publication of the amended Rules of Procedure of the Court of Justice and of the General Court, so that all three texts will enter into force at the same time. Draft amendments to their respective Rules of Procedure have been submitted by both courts to the Council for approval and are presently under examination.
Extension of the appeal filtering mechanism
This article focuses on one of the core elements of the reform which extends the filtering mechanism for appeals against certain decisions of the General Court to include decisions concerning a decision by the Appeal Panel of the Single Resolution Board (SRB) or by the Joint Board of Appeal of the European Supervisory Authorities (ESAs) (Article 58a, first paragraph, points (f) to (i) of the Statute of the Court of Justice as amended). Under this filtering mechanism, an appeal will be allowed to proceed to the Court of Justice only if it raises an issue that is significant with respect to the unity, consistency or development of EU law, following consideration of the case by a board of appeal and the General Court.
Scope of the amendment
The amendment concerns EU measures which are subject to review by the Appeal Panel (AP) of the SRB and the Joint Board of Appeal (JBoA) of the European Supervisory Authorities (EBA, ESMA and EIOPA). The jurisdiction of the AP covers the decisions of the SRB referred to in Article 85(3) SRMR. This includes decisions by the SRB determining the requirements for own funds and eligible liabilities (MREL), on the removal of substantive impediments to resolvability, the imposition of fines and periodic penalty payments, as well as extraordinary ex-post contributions to the SRF. The practice of the AP has mainly focused on decisions of the SRB in the areas of access to documents, contributions to the administrative expenditures of the SRB, and MREL. The jurisdiction of the JBoA covers the decisions listed in Article 60(1) ESAR, including decisions by EBA concerning alleged breaches or non-applications of Union law, action in emergency situations, and settlement of disagreements between competent authorities in cross-border situations. The appeal filtering mechanism will be applicable to appeals of which the Court of Justice is seized after the date of entry into force of the regulation amending the Court's Statute.
The reform does not address the Administrative Board of Review of the ECB, a voluntary procedure which is not required before bringing an action before the General Court. Only legal actions against bodies, offices and agencies of the Union may be subject to specific conditions and arrangements pursuant to Article 263(5) TFEU.
The appeal filtering mechanism
The appeal filtering mechanism stipulates that an appeal brought against a decision of the General Court concerning a decision of an independent board of appeal shall not proceed unless the Court of Justice first decides that it should be allowed to do so (chapeau of the first paragraph of Article 58a of the Statute). An appeal shall be allowed to proceed, wholly or in part, in accordance with the detailed rules set out in the Rules of Procedure, where it raises an issue that is significant with respect to the unity, consistency or development of Union law (Article 58a, third paragraph of the Statute).
The decision as to whether the appeal should be allowed to proceed or not shall be reasoned and published (Article 58a, fourth paragraph of the Statute). Moreover, the General Court, the Member States, the European Parliament, the Council and the European Commission, regardless of their status as parties to the proceedings, will be informed by the Registrar of the decision that the appeal should be allowed to proceed (Article 170b(5) of the Rules of Procedure of the Court of Justice, in the following: Rules of Procedure).
Enhanced requirements of judicial appeal
Introducing the appeal filtering mechanism will substantially raise the requirements of appeals lodged against General Court decisions regarding pronouncements of the AP and the JBoA.
Formalities of the request
Strict formal requirements apply to the request that the appeal be allowed to proceed. The request shall be annexed to the appeal, setting out the issue raised by the appeal that is significant with respect to the unity, consistency or development of European Union law and containing all the information necessary to enable the Court of Justice to rule on that request (Article 170a(1), first sentence Rules of Procedure).
Moreover, the content of the request has to meet the requirements which the Court of Justice outlined in its case law (e.g. EUIPO v KaiKai, C‑382/21 P, ECLI:EU:C:2021:1050, para. 22; Porsche v EUIPO, C‑613/19 P, EU:C:2019:905, para. 15). Among other criteria, the request must set out clearly and in detail the grounds on which the appeal is based and what issues of law it raises, as well as the specific reasons why these issues are significant with respect to the unity, consistency or development of EU law. Regarding the grounds of appeal, the request must specify the provision of EU law or the case-law infringed by the decision under appeal, explain succinctly the nature of the error of law, and indicate to what extent that error had an effect on the outcome of the decision under appeal.
Significance with respect to the unity, consistency or development of EU law
Crucially, the examination by the Court in an appeal is limited to the grounds of appeal that raise issues of significance with respect to the unity, consistency or development of EU law and that are established by the appellant. The onus for establishing the special significance of the appeal, as the core criterion of the appeal filtering mechanism, lies with the appellants who face considerable legal uncertainty as to its precise meaning and contours.
What is meant by an issue that is significant with respect to the unity, consistency or development of EU law has been left to the Court of Justice to work out in its (so far limited) jurisprudence. The open wording suggests that the Court enjoys a wide judicial discretion in this regard (Opinion of Advocate General Ćapeta, EUIPO v KaiKai, C‑382/21 P, ECLI:EU:C:2023:576, paras. 32-33, with further references). The decision on the request that the appeal be allowed to proceed is taken by a specific chamber of the Court of Justice specially established for that purpose (Article 170b(2) Rules of Procedure).
Low number of successful requests
Practice has demonstrated that the appeal filtering mechanism constitutes a high bar to appeals against decisions of the General Court. Since the mechanism was introduced on 1 May 2019, the Court of Justice has allowed appeals to proceed only with regard to less than 5% of such requests.
The orders made by the Court of Justice on requests for appeals to proceed have so far related almost exclusively to decisions of the General Court concerning decisions of the Boards of Appeal of the European Union Intellectual Property Office (EUIPO). Conversely, the appeal filtering mechanisms existing with regard to the Community Plant Variety Office, the European Chemicals Agency and the European Union Aviation Safety Agency have hardly been used yet.
Expected impact on judicial protection
The reform extending the appeal filtering mechanism to decisions of the General Court concerning a decision by the AP or by the JBoA is expected to have profound implications for the efficacy of judicial protection against the relevant regulatory measures at the EU level.
The heightened threshold for appeals against General Court decisions, introduced by the filtering mechanism, will amplify the role of the General Court, which is likely to issue binding decisions and largely shape the jurisprudence in the relevant areas in the future. To this extent, the Court of Justice may assume a more residual role akin to that of a ‘Supreme Court' (cf. Opinion of Advocate General Ćapeta, EUIPO v KaiKai, C‑382/21 P, ECLI:EU:C:2023:576, paras. 37-38).
However, it is questionable whether the same level of protection of rights and access to justice will be maintained under the appeal filtering mechanism, given the virtual elimination of one judicial instance and the institutional shortcomings of the boards of appeal in this regard: The AP and the JBoA are financially reliant on the budgets of the agencies whose decisions they review. The membership of the AP is appointed by the SRB (Article 85(2), third sentence SRMR) and terms of membership may be extended once (Article 85(2), third sentence SRMR). While the latter is also true in respect of the JBoA (Article 58(4) ESAR), the procedure to appoint its members provides for an involvement of the European Commission and the European Parliament (Article 58(3) ESAR).
The AP is constituted by experts (Article 85(2) SRMR) and could be in a position to effectively examine highly technical matters. Yet, the AP grants the SRB a margin of technical discretion and limits its standard of review in this regard to manifest errors of assessment. Notably, the AP does not render a decision of its own, but may confirm a decision taken by the SRB, or remit the case to the latter (Article 85(8), first sentence SRMR). While the SRB is bound by the decision of the AP when adopting an amended decision regarding the case concerned (Article 85(8), second sentence SRMR), the precise scope of the binding effect has not been regulated.
As a result, the intended enhancements to judicial review through the reform of the Statute of the Court of Justice are met with considerable impairments to the prospects of legal protection and access to justice. It remains to be seen whether these concerns will be alleviated to some extent by the possible expansion of the jurisprudence by the European courts concerning boards of appeal composed of experts. For example, the European courts have already determined that the review of scientific assessments by the Boards of Appeal of the European Union Agency for the Cooperation of Energy Regulators (ACER) and the European Chemicals Agency (ECHA) is not confined to verifying the existence of manifest errors. The Court of Justice noted that such a limitation would fail to provide effective judicial protection (ACER v Aquind Ltd, C‑46/21 P, ECLI:EU:C:2023:182, para. 67). Instead, the boards must examine, by relying on the specific expertise of their members, whether decisions of the ACER and ECHA are based on considerations vitiated by errors.
Isabel Walther (White & Case, Legal Assistant, Berlin) contributed to the development of this publication.
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